Mortgage borrowers opting to overpay - Mortgages - News - Moneyfacts


Mortgage borrowers opting to overpay

Mortgage borrowers opting to overpay

Category: Mortgages

Updated: 04/01/2010
First Published: 03/12/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Consecutive months of record low interest rates have seen homeowners increasingly opting to overpay on their mortgages, new figures have revealed.

The Co-operative Bank said there had been a 56% year on year increase in the number of its customers choosing to pay more off their mortgage than they needed to.

With the Bank of England base rate having been at an historic low since March, those people on variable rate products were unsurprisingly found to be the most common overpayers.

Such borrowers were said to be three times more likely to be making overpayments than those on fixed rate mortgages.

As a result of the increasing trend, the bank has revealed plans to launch a pilot scheme, offering those customers who have already made significant overpayments in 2009 the option to make additional capital repayments of up to 50% of their entire mortgage, without penalty.

The capital repayments will sit outside the normal overpayment scheme, and will offer a permanent reduction in the capital outstanding, immediately reducing the outstanding balance of the mortgage.

It is hoped the scheme will offer customers a number of benefits, including the ability to obtain lower rate products available for lower loan to value mortgages, as well as reductions in monthly payments and/or the term of the mortgage.

Currently most of the bank's customers within their initial mortgage deal period are allowed to make overpayments of up to 10% of their mortgage balance per year, without any penalties. Customers on lifetime trackers and standard variable rates have no restrictions on overpayments.

"With interest rates continuing to remain at the current low level, we have been following developments in this area closely," said Terry Jordan, Head of Mortgages at The Co-operative Bank. "Many economists are predicting that the interest rate environment will remain low into 2010, so we will be monitoring this pilot scheme in detail, with a view to rolling it out across more customers next year if it is successful."

Find the best mortgage for you - Compare fixed rate mortgages

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Goodbye to the Help to Buy Guarantee

On 31 December, phase two of the Help to Buy initiative will be withdrawn from the market. It’s certainly done wonders for the high loan-to-value sector, so we thought we’d take a closer look at the significance of the scheme and the effect it’s had.

Remortgaging bounces back

Remortgaging has been enjoying a welcome boost in recent months, despite September’s slight dip, with many homeowners capitalising on record low mortgage rates to boost their finances.

Bank of Mum and Dad holds the (house) key

The Bank of Mum and Dad is an important source of finance for many young adults, and it seems that they still hold the key – in more ways than one.